The Statement of Owners Equity

The statement of owners equity is the second report of the financial statements. Its full name is the statement of changes in owner's equity.

This accounting report shows all the changes to the owners equity that have occurred during the period. These changes comprise capital, drawings and the profit for the period.

The format of the statement is shown below:

As you can see, it shows the balances of the owners equity at the beginning and end of the period in addition to the changes that occurred during this period.

Just like the income statement, this statement normally covers a twelve-month period.

Statement of Owner's Equity Example

Here is the trial balance for George's Catering, the business we were using in previous examples:

In order to draw up the statement of changes in equity for George's Catering, we will take all items that affect the owners equity (the owner's share of the business) and put these in this new statement.

Drawings and capital will definitely be included here.

What about income and expenses? Well, the income and expenses have already been put in the income statement so as to calculate the profit or loss for the period. This overall profit or loss figure is now going to be transferred to the statement of changes in equity to calculate the closing balance of the owners equity.

The statement of changes in equity for George’s Catering is shown below:

As you can see, the closing balance of the owner’s equity is the same as what we calculated in earlier sections:

So, to conclude, the figures for the statement in owner's equity come from our first statement - the income statement (profit or loss figure) as well as from the trial balance (capital, drawings).

So that's the statement of owner's equity. In our next lesson you'll learn how the equity statement actually links up with the next accounting report, the balance sheet...